Underlying wage growth and joblessness remain almost static

Headline wage growth in the British economy reached a six-month high in the three months to September but economists said there were growing signs that the labour market is softening.

The Office for National Statistics reported that average earnings including bonuses rose at an annual pace of 4.1% in September, up from 3.7% the month before. After bonuses are stripped out, the figure was unchanged at 3.7%. For September alone, earnings growth ex-bonuses dropped to 3.5% from 3.8% in August. And all the figures are well within the Bank of England's comfort zone of 4.5% earnings growth which it considers to be compatible with stable inflation.

Unemployment on the labour force survey measure rose 6,000 over the same period to 1.67 million although the rise was not enough to shift the jobless rate up from 5.4%.

The narrower claimant count measure of joblessness showed a fall of 9,900 in October to 824,800. That was the 13th monthly fall in a row but left the jobless rate steady at 2.6% of the workforce.

The employment rate remained steady at 74.4% of the workforce, showing that the expansion in the workforce over the past quarter was larger than the 69,000 rise in employment. Inactivity rose 8,000 in the quarter to under 8 million.

"Despite the rise in earnings growth including bonuses, the balance of supply and demand in the jobs market remains conducive to modest pay rises," said John Philpott, chief economist at the Chartered Institute of Personnel and Development.

He added that Bank of England governor Mervyn King had sounded unduly alarmed about upward pressure on wages during his press conference yesterday.

The Bank's monetary policy committee remains split as to the impact of the labour market on pay pressures. Many are concerned that record levels of employment could push wage growth up.

But labour market expert David Blanchflower argues that the data points, if anything, to a softer jobs market as a result of high levels of immigration that have increased the supply of labour faster than the demand for it has risen, thus keeping a lid on pay pressures.

Philpott agreed: "The UK jobs market does not at present pose a serious risk to inflation. By the middle of next year workers and jobseekers will be feeling the effects of the economic slowdown as jobs become harder to find and real incomes are squeezed still further."

Geoffrey Dicks, chief UK economist at RBS, also detected signs of slackness beginning to appear in the data.

"Although the [lagging] employment data trends remained generally solid, there were early signs that recruitment in the financial services sector - the UK's major job-creation engine in recent years - has begun to slow with a fall in the number of vacancies."